Intorduction:Within the overall umbrella of the word economy, one speaks today of the market economy, the formal economy, the informal economy, the underground economy, the productive economy and perhaps even the reproductive economy, the post-industrial or post-modern economy and the global economy. Thus while the concept of an economy is not fixed but arbitrary, and may have strayed rather far from the management of household resources, it is nonetheless spoken of in official circles as if there were genuine agreement (sometimes almost as if it were tangible, as we must get the economy back on track). The official economic paradigm operative in Canada is that of the market economy — or the formal economy. This is what is being measured, analysed and reported on.
An economy is said to work within a framework reflecting the values of the society in which it is embedded. Traditionally, three models of an economy have been used: the traditional or feudal, the command economy (where the state determines resource decisions) and the market economy which is the model in use in USA and in most industrialized Western countries. Indeed, even within the market economy, there are different models; for example, the Scandinavian model of social democracy, the Asian corporatist mode, and the capitalist model of North America. Each model has been seen and judged both from inside and outside its parameters. Individual freedom is one of the hallmarks of the market economy — each person is free to choose how they wish to put their income to use. Adam Smith, hailed as the founder of classical economics, suggested that the sum of individual’s self-interest would produce results that corresponded to the overall good of society.
The Economic systems:There are three types of economies: traditional (also known as subsistence), command (also known as planned) and market (commercial). Traditional EconomyIn a traditional economy, goods and services are produced by a family for their personal consumption. There is little surplus and little exchange of goods. There is only a limited need for markets (places to buy and sell goods and services). This is the type of economy found in less developed nations of the world, usually in rural areas.
Most less developed nations today are a mix of traditional and either market or command economies. Command EconomyThere are three types of economies: traditional (also known as subsistence), command (also known as planned) and market (commercial). In a command economy, decisions about what and how much to produce, where to locate economic activities, and what prices to charge for goods and services are made by a single, central government agency or authority. These economic decisions are often made to further social goals. Communism is one example of a command economy; socialism is another. In a command economy, the government, not market forces, controls the price of goods including agricultural products.
Production costs are not reflected in prices. For example, it may cost $1. 00 to produce a loaf of bread, but the price may be set at $. 25 to ensure consumers are able to afford adequate supplies. Market EconomyThere are three types of economies: traditional (also known as subsistence), command (also known as planned) and market (commercial). In a market economy (elements of which may be considered a free enterprise economic system), decisions about what and how much to produce, where to locate economic activities, and what prices to charge for goods and services are determined by laws of supply and demand and the market.
Profit drives decisions in a market economy. USSR, The command economy:From 1928 onwards the Soviet economy course was charted at the centre and directives issued outwards from the centre passing downwards and outwards through a massive hierarchical bureaucracy. Stalin’s emphasis on centralization, state ownership of the means of production, and centrally planned production and distribution set the tone for the development of the Soviet economy for the next sixty years. State socialism is, by definition, a centrally planned, command economy. When one refers to the Soviet version of state socialism one is referring to the highly centralized, command economy that was established under Stalin. On certain levels this economic program met with considerable success.
In the 1940s the Soviet state withstood the German onslaught and emerged from the Second World War as a global power. Also, in the ensuing years the Soviet Union was able to maintain a military industrial complex that allowed it to contend with the United States on a global basis. The means of production were entirely owned by the state and all economic activity was centrally planned through the State Planning Commission (GOSPLAN). On the on hand, this permitted the coordination of economic activity and when, necessary, facilitated rapid advancement of particular policies or specific sectors of the economy.
During the first Five – Year plan collectivisation of agriculture proceeded at a phenomenal rate (aided by coercion) and in 1929 a 49 per cent increase in state procurement of grain over the previous year was recorded. ( Nove, 1992, P161). In similar fashion, in the five years after the Second World War the Soviet economy demonstrated amazing recuperative powers. Between 1945 and 1950 the national income index doubled to a level that exceeded pre-war levels by 63 per cent. Coal, electric power and steel production all also doubled between 1945 and 1950.
(Nove, 1992, P298) However, these gains were obtained at the expense of consumer goods. Production of cotton and wool fabric in 1950 only matched 1940 levels and grain production remained below 1940 levels. The Soviet economy rapidly rebuilt its heavy industries those necessary to maintenance of a military industrial complex but choose to do little to meet the needs of its citizens. Simply put, the production figures that the economy generated did little to benefit the populace.
Needless to add, in a society with a reasonable degree of political freedoms, specifically a democratic system, it can be assumed that the population would have pressed for reordering of priorities. Moreover, in a centralized economy production directives and their results may bear little relationship to reality. In Restructuring the Soviet Economy, David Dyker cites an example of production figures being met at the cost of quality control. During the 1960s extensive efforts were undertaken to improve irrigation and, consequently, agricultural production in the North Caucasus. GOSPLAN established production targets that outlined the length of pipe to be laid during set periods of time.
However, meeting these centrally ordained targets proved impossible. On site engineers determined that the pipe be laid only 15 centimetres below the surface, rather than the 70 centimetres specified in order to insure that they could report having met their targets. (Dyker, 1992, P33-35) The piping was laid according to the centrally established objectives. However, it proved to be inoperable in practice as it repeatedly ruptured and flooded the adjacent fields.
(Dyker, 1992, P35) While central planning permits the concentration of resources it also often neglects local conditions and results in production goals becoming overly important. Similar, problems emerged in the agricultural sector where excessive intervention by central authorities actually acted to undermine agricultural production. Until the collapse of the Soviet Union, and indeed up to the present, the Soviet Union has been a net importer of grain: Unable to produce enough grain to satisfy its domestic needs despite millions of acres of some of the best agricultural land in the World. (Belozertsev and Markham, 1992, P134)Central planning also had a deleterious impact on management. Soviet managers developed a management style that David Dyker refers to as the ratchet principle.
Managers of state operated enterprises (SOEs) had no interest in significantly improving output or in considerably surpassing their centrally assigned objectives. Soviet managers endeavoured to increase production moderately each year and safely meet, but not noticeably exceed, their assigned production assignments: In other words, they ratcheted up production one notch each year. (Dyker, 1992, P26) In a similar fashion, centrally assigned production goals discouraged Soviet management from developing or employing technological innovations. (Dyker, 1992, P29)The excessive emphasis on central planning discouraged both managerial and technological innovation, as a consequence of this emphasis on steady mediocrity, and an excessive emphasis on centrally assigned production goals, a style of management that encouraged complacency and consistency at the expense of productivity and innovation developed. Under state socialism the economy is subject to rigid control from a central planning agency.
This permits the concentration of effort on specific sectors of the economy and the Soviet Union repeatedly demonstrated and ability to make significant production advances in targeted sectors of the economy. However, the innumerable negative aspects of state socialism counteract these positive aspects. In the case of the Soviet Union illustrative, if not comprehensive, examples of these problems have been demonstrated in the body of this essay. Agricultural collectivisation during the 1930s was only accomplished at the cost of extensive coercion and violence. In the years after the Second World War significant productivity gains were made in heavy industry, but they were only achieved at the expense of neglect of the consumer sector and deplorable agricultural productivity.
Thus, throughout the state socialist period of Russian history the civilian population constantly suffered from a low standard of living and shortages of consumer goods. More importantly, the emphasis on central planning that was apparent in the economy was manifest in other aspects of life in a totalitarian and repressive government. Therefore, under state socialism Soviet citizens suffered from material shortages and political repression. These shortcomings of the system outweigh any industrial and manufacturing advances that the system generated. USA, The market economy:In contrast to centralization, state ownership of the means of production, and centrally planned production and distribution, capitalism relies on private ownership and individual initiative in the marketplace for production and distribution.
In general terms, capitalism s advocates argue that individuals pursue their own best interests, in economic terms efficiency, and that this mutual pursuit of individual interest (the free market) encourages innovation and improvement. In the USSR production and distribution was driven from the centre, under capitalism production and distribution is seen as the aggregate outcome of individual autonomy and activity. In a similar fashion, free market societies are generally liberal democracies. The analogy is presented that the free market in economics is equivalent to the free market of ideas and policies that is liberal democracy.
Underlying this approach to economic (and political) organization is the assertion that all individuals possess certain equal rights to vote, to work, to move and that this creates a level playing field in the free market and electoral politics. A centralized economy attempts to design and enforce an equitable system of distribution while capitalism asserts that equitable distribution will ensue if all individuals compete on a level playing field. Unfortunately, as was the case with a centralized economy, reliance on the free market results in both successes and failures. The successes that capitalism rightly lays claim to relate to innovation. Competition does encourage innovation, and capitalism has produced well over a century of dizzying technical progress.
At the same time productivity has also increased at a phenomenal rate. These technological developments can, in large part, be linked to the competitive environment of the free market. However, the failures of capitalism are evident in North American society also. In a city as affluent as Toronto, a city with a global reputation for quality of life, homelessness is a constant and squeegee kids are just a new element in the milieu. In the United States the inner cities have become hyper-segregated urban battlegrounds while gated communities proliferate.
This handful of examples suffices to illustrate hat North American capitalism has done a less than perfect job of distribution. Under capitalism, as Frank Cunningham points out, freedom does not include freedom from poverty and rights do not include such simple material factors as shelter and employment. (Cunningham, 1977, P97)More importantly, these anecdotal illustrations point to structural imbalances in capitalism; imbalances that make free market and the level playing field myths. People are born with neither equal opportunities nor equal abilities: Therefore, they enter the playing field at different levels. The son of a Multi-Million Corporation vice-president, attending Harvard and living in Beverly Hills has different opportunities than the daughter of a landed immigrant from Poland who drives a taxi in LA.
It is ludicrous to suggest that the two have equal opportunities or compete on a level playing field. In fact, these two individuals would largely live in separate worlds because of their differing economic circumstances. For the former the government would be represented by Revenue, for the latter it would be Community and Social Services. While both might see the Metro police as a symbol of government it would not be unreasonable to presume that they had had different experiences with them. Most importantly, their lifestyles from diet to leisure would be completely different largely as a result of their economic status.
The free market and the level playing field enhance the status quo by insuring that the wealthy can use their wealthy to preserve their position and aid their children s careers. At the same time they condemn the poor to their place by insisting they enter the free market bereft of resources economic, educational and political. Politics in capitalist affairs merit a brief aside. In politics, as in economics, the possession of wealth and capital translates into influence. A newspaper publisher has a larger forum than a plumber and a lobbyist who donated thousands of dollars has more influence than an injured worker appealing a WCB decision.
In a democracy, one-man one-vote does not translate into a level playing field because economic factors influence one s political influence if not one s voting rights. Capitalist societies rely on the marketplace to regulate the distribution of goods. While this encourages competition and innovation among manufactures it also encourages competition among consumers and labors and results in massive imbalances in distribution. In cities throughout North America the homeless sleep within meters of mansions and exclusive condominiums. The marketplace possesses no inherent morality.
In fact, in its worship of competition it is amoral. On the other hand, the Soviet experience clearly demonstrated that state socialism and a centralized economy can be mishandled. Perhaps it is human nature, not political organization that lies at the root of inequality in both North America and Eastern Europe.BibliographyBibliography? Aghion, Philippe and Olivier Blanchard and Robin Burgess, The Behavior of State Firms in Eastern Europe, Pre-Privatization ?European Economic Review 38: 1994, pp1327-1349.? Belozertsev, Alexander and Jerry W Markham, Commodity Exchanges and the Privatization of the Agricultural Sector in the Commonwealth of Independent States Needed Steps in Creating a Market Economy ?Law and Contemporary Problems 55: (4), Aut 1992, pp119-155? Cunningham, Frank Understanding Marxism Progress Books Toronto: 1977.? Dyker, David Restructuring the Soviet Economy Routledge New York: 1992? Nove, Alec An Economic History of the USSR, 1917-1991 3rd Ed Penguin Books, London: 1992? Lane, David Soviet Society under Perestroike Routledge London: 1992? Yarolavsky, E Landmarks in the Life of Stalin Lawrence & Wishart Ltd London: 1942Economics Essays